DEARER MONEY

Evening Post, Volume CXXI, Issue 84, 8 April 1936, Page 14

DEARER MONEY

INVESTMENT MARKET

FINANCE IN AUSTRALIA

(Special to the "Evening Post.")

MELBOURNE, March 26.

Since the last report was written, a variety of factors have disturbed values in the share market and causes both political and economic have in turn influenced the general trend of prices. In the last report, attention was directed to the fact that a great deal of the buying was speculative, and with the deterioration in the international position, this buying was withdrawn from the market. European politics are having a greater influence on Australian prices, and it has been particularly noticeable over the last few months that there is a definite sympathetic relationship between Australian and London prices, and Australian investors are guided to a great extent by financial opinion in London on the immediate political outlook. This was illustrated and commented on in. a previous review when the Italian situation first disturbed the market, and it was again proved in the more recent crisis. . Following closely on the disturbed political situation, nearer at home we had the Treasury bill experiment, of which only £310.000 of an available issue of £1,000,000 was subscribed. Before the public had the opportunity of subscribing towards the issue, the Bank of New South Wales, breaking away from the Associated Banks, announced an increase in fixed deposit rates to conform with the more attractive rates offered by • • the Common-wealth-Bank in its Treasury bill issue. For' a ' time" there was considerable doubt as to whether the Associated Banks-would follow the lead given by the Bank of New South Wales, but one of the smaller banks, the Bank of Adelaide, announced an increase almost immediately after. The action of the Bank of New South Wales and the action of the Commonwealth Bank had political repercussions, and the Commpnwealth Bank issued a statement to . the. effect that bo further public issues of Treasury bills were contemplated, and.reaffirmed its adherence to a cheap-money policy; but, notwithstanding the former assurance, which was given' as'the reason for the action of the Bank of New South Wales, in increasing! its.rate, the other trading banks . subsequently increased their ' rates. While there are at present lengthy discussions about the increase, it seems that sooner or later it would'have been brought about in any case, but the share market is now presented with an accomplished fact,.to which attention. has nevertheless been directed over the last few months by the steadily increasing return- shown from the ten 4 per cent. Australian Consolidated Loans. LONDON FUNDS. ' The increase in interest rates also directs' attention to the state of the London funds, and it is estimated by various authorities for. the current year that there will be a deficiency on the London funds of from £5,000,000 to £15,000,000. Statements have also been made that a general restriction of - credit is. inevitable, and from inquiries made there seems to be some truth in this statement.

Business at the present time is still healthy, but certain enterprises can be considered, so to speak, on the crossroads, and their ultimate success will depend upon the monetary policy assumed by banking authorities of this country. Deflation, if only mild, and the increase in interest rates, are bound to affect the building'industry and constructional activity. The actual increase in the rate of interest must in turn'be reflected in fixed interest stocks, debentures, and preference shares, and over the next few months capital values must see a further readjustment, and as far as industrial equities are concerned, the possibility of an increase in dividend must be counter-balanced against the present relatively low returns in most cases and the possibility that the price in some cases has apparently reached the stage where the future has been fully discounted. . At present, discussions are being made' with a view to reducing or removing the tariff on Australian cement. In evidence tendered before the committee, it reaffirmed the previous statements made that the industry is very much over-capitalised, and it has been stated that the consumer should not be compelled to pay for that part of the plant much in excess of current requirements, and on top or that pay a very handsome return on the total capital invested in the industry. Cement shares have declined in sympathy. GOLD AND BASE METALS. : Generally speaking, the market has been relatively weak right through, and although there have been waves of buying for particular stocks, yet a fair amount of liquidation has been noticeable. Over the past two days, goldmining securities showed a tendency to recover on the good report from the Fijian field in both Emperor and Loloma. Sooner or later, the possibilities of the leading gold-mining companies will be realised, and those with definite proved ore reserves and satisfactory treatment costs and plant at present give returns of up to 10 per CCAs far as the future of the industrial market is concerned, this seems to depend upon a genera readjustment of prices to. conform with the increased interest rates and; as proved over the last few months, so much depends upon the political situation, which is changing from day to day. and to this extent it :is impossible to forecast the future with any degree of certainty. :X far as the base metals are concerned, recent reports received from London indicate that, particularly in the case of copper, London opinion favours a. continuance of the present slow rise, and with the armament and disturbed international position prices can be expected to improve further. The statistical position is sllo^ a monthly improvement, and under the terns ol the agreement is coming more infb line with consumption, which is showing a satisfactory improvement, and wHh the potential demand from the American utilities industries the outloo^musTbe considered altogether this month is general, in the sens, that articular stocky have not been discussed, but if the two Underlying factors in the. marke. realised they can be used as a yaidsUck for the measurement o£ the whole "interest rates and politics will almost certainly determine the course of vllues, and it should be remembered that in many cases record prices; for the last fifteen years have been obtained.